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The government expects telecom companies to bid aggressively in the auction as they seek to improve the quality of their service. Photo: Mint

New Delhi: Spectrum worth Rs.5.63 trillion at the base price will go under the hammer in India’s largest auction of mobile airwaves—an exercise that some analysts see as overambitious.

Bidding will begin on 29 September, with 2,354.55 megahertz (MHz) of spectrum up for grabs, the department of telecommunications (DoT) said on Monday.

The government expects telecom companies to bid aggressively in the auction as they seek to improve the quality of their service. The sale of spectrum will expand bandwidth and improve the ability of telecom companies to service consumers and address problems such as call drops.

For the government, the auction receipts, to be accrued over the years, will alleviate fiscal pressure.

“The amount of spectrum being put on auction is more than any previous auction. It will give telecom companies an opportunity to bid and acquire a chunk of spectrum which would enable them to provide international-quality services,” said DoT secretary J.S. Deepak at a press conference where he released a notice inviting applications for the auction.

The auction should help telcos improve quality of service, given that the ecosystem of data consumption in the telephony space is driven by content. Telecom companies have been found wanting in numerous test drives conducted by the Telecom Regulatory Authority of India, which showed that most telecom operators failed to meet benchmarks.

The government is putting on sale spectrum bands of 700MHz, 800MHz, 900MHz 1,800MHz, 2,100MHz, 2,300 MHz and 2,500 MHz. The 700 MHz band, which is the most expensive and most effective, is likely to generate less interest from telecom service providers.

The total spectrum on the block includes 197MHz of additional spectrum in the 1,800 MHz band and 37.5MHz in the 800 MHz band, released due to harmonization of spectrum in these bands.

For the first time, spectrum will be assigned within 30 days of an upfront payment by successful bidders, said Deepak.

A pre-bid conference will be held on 13 August to give telecom companies an opportunity to get their queries answered and seek clarifications.

The government has fixed 3% of annual revenue as usage charge for spectrum acquired in the upcoming auction; for existing spectrum, a weighted average spectrum usage charge (SUC) has been fixed, with a floor price of 3%.

It has also reduced interest on payments for spectrum made in instalments to 9.3% from about 10% earlier.

Telcos that will win spectrum in the 700, 800 and 900MHz bands will have to pay at least 25% of the bid amount within 10 days of the auction process. The rest will have to be paid in 10 annual instalments after a two-year moratorium. For the rest of the bands, at least 50% of payment will have to be made within 10 days of the auction process.

“This time around, quantum of spectrum is more, harmonization has been cleared and SUC has been reduced and there is a commitment to allocate spectrum within 30 days of operators making payments. All these are big positives,” said Rajan S. Mathews, director general of the Cellular Operators Association of India.

“However, we remain worried about the pricing of the spectrum in 700MHz. There will be good demand for 1,800MHz, 2,100MHz and 2,300MHz and very little for 700MHz. We will be surprised if anybody bids for 2,500MHz as ecosystem for that band has not really developed in India,” he added.

At Rs.11,485 crore for 1MHz, the 700MHz band is the most expensive. At that price, it makes a bidder liable to pay Rs.57,425 crore for 5MHz on a pan-India basis.

As aggressive bidding will put further pressure on the balance sheets of telcos, already burdened by debt, there will be muted response to the spectrum auction, according to Sanjay Kapoor, former chief executive of India’s largest telecom service provider Bharti Airtel Ltd.

“A lot of spectrum being put on the table takes away any artificial scarcity being created. My big worry would be that a lot of monies will have to be committed. Does the industry have the appetite for more spectrum and then back it with further investments?” Kapoor said on CNBC-TV18 news channel.

“The response (to the auction) is going to be rather muted,” Kapoor added. “Revenues generated (through the auctions) will be significantly shorter than their (government’s) expectations...”

Amresh Nandan, research director at Gartner Inc., expects the industry to participate in the auction as the government has put a lot of bands on auction.

“I am sure that the telcos have prepared their investment business cases and these spectrum bands are needed for better rationalization/harmonization of their spectrum portfolio besides enhancing their capacity for high-speed mobile broadband. We should not see their interest in isolation as other strategic activities such as consolidation and new services planning are happening in the industry. And, telcos have good ability to bid,” added Nandan.

According to Hemant Joshi, partner at Deloitte, Haskins and Sells, the entire auction process is overambitious.

“In the upcoming spectrum auction, the spectrum is not for renewal and therefore the operators are unlikely to bid aggressively as they would buy spectrum for new services or augment their spectrum holding. The operators will choose spectrum based on availability, pricing and the band which will fit their current spectrum holdings,” Joshi said.

The much-awaited entry of Mukesh Ambani’s Reliance Jio Infocomm Ltd is likely to change the dynamics of the telecom industry significantly.

Ambani has announced an investment of $22 billion in his telecom venture, leaving him with enough cash to bid for the 700MHz band and putting existing telecom companies, hamstrung by a combined debt of Rs.3.8 trillion as of December, on the back foot.

To enable better operability, it makes sense to have a pan-India presence, which in the past has triggered aggressive bidding. The 2015 spectrum auction, in which the government had put up a total of 380.75MHz of spectrum for sale in the 800MHz, 900MHz, 1,800 MHz and 2,100 MHz bands, raised Rs.1.1 trillion.